September 2016 Housing Price Data for Xinyuan Real Estate’s Markets

China Index Academy (a research unit of Soufun) released its monthly report of new home prices in 100 top Chinese markets (LINK). On a national basis average selling prices rose 2.8% for the month and 16.6% from one year ago.

In September more cities including Nanjing, Hangzhou, Zhengzhou, Kunshan, Jinan, Beijing and Tianjin introduced new measures to restrain markets. But like Black Friday doorbusters, these restrictions sometimes lead to panic buying sentiment as seen at one development in Hangzhou:

The Central China markets have been steady performers. These cities have strong economic potential supported by good transportation infrastructure and labor supply. The Xinyuan brand is well-known in this region and the company has phased development plans in cooperation with local governments enabling a predictable supply and price for future land acquisitions. Earlier this year the company disclosed new land acquisitions in Zhengzhou (LINK) where its projects have been consistently profitable (LINK). In February 2016 the company raised its ownership in the Xi’an project from 50% to 65% at a bargain price. September price strength in Jinan and Zhengzhou bodes well for Xinyuan’s 3Q16 earnings.

The Tier 1 cities have been China’s strongest long-term markets. The cities are crowded and expensive, but offer the best jobs and cultural environment. Participation in these projects benefits the Xinyuan brand image. Earlier this year the company acquired a new site in Beijing with excellent potential (LINK).

The Jiangsu Province cities close to Shanghai have been very strong. Hosuing market restrictions in neighboring Shanghai and Suzhou recently may have driven more demand to Kunshan. These areas offer many of Shanghai’s advantages (good job prospects and cultural environment), but with a more comfortable and affordable lifestyle. Expanding transportation links provide easy access to Shanghai by high-speed rail and subway (from Kunshan). Earlier this year Xinyuan acquired a new site in Kunshan (LINK). High current land prices make it challenging to replace the Suzhou Lake Royal Palace project as it nears completion (67% sold at 6/30).

Xinyuan’s other Chinese projects are in cities with high economic growth, but where real estate markets suffered from a short-term oversupply of inventory. Xinyuan’s 2Q earnings report showed a significant increase in sales volume in both Chengdu and Changsha and a favorable price trend as well. The vacation market of Sanya has been weak, perhaps due to rising Chinese interest in international travel. Disappointing sales at Xinyuan’s project there may be due to inexperience in marketing of a higher-end leisure property which is different from the company’s main emphasis on middle class homes.

Note that “Xinyuan Inventory” by city was derived from the table in Xinyuan’s earnings report titled: “Real Estate Project Status in China” (LINK)